Lien is invalid because IRS did not verify notices of deficiency

By James A. Beavers, CPA, CGMA, J.D., LL.M.

The Tax Court, in a Collection Due Process (CDP) hearing review, refused to sustain the filing of a Notice of Federal Tax Lien (NFTL) because the IRS had failed to properly verify that the IRS had issued the taxpayer notices of deficiency for the years at issue and sent them to his last known address.


Mark Pfetzer failed to file his federal income tax returns for 2004 through 2012. The IRS eventually prepared substitutes for return under Sec. 6020(b) and assessed tax for all nine years.

Pfetzer also did not pay the assessed tax deficiencies for those years, and on June 30, 2016, the IRS sent him a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing (lien filing notice), covering the liabilities for 2004 through 2012. In response to the IRS's invitation in that letter, Pfetzer timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing, requesting an administrative hearing. On that form he stated that he: (1) did not owe the asserted tax liabilities for 2010 and 2011; (2) wanted verification that the IRS performed the procedures required by law; and (3) wanted a face-to-face administrative hearing at the IRS office closest to him.

After receiving the form, the IRS assigned Settlement Officer Laurel Smith to Pfetzer's case. She sent Pfetzer an initial contact letter and set up a telephone conference. Smith told him she would arrange a face-to-face meeting if he sent her the returns for 2010 and 2011 and, if he wanted to be considered for collection alternatives, Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and tax returns for 2013, 2014, and 2015.

Pfetzer responded by reiterating his request for a face-to-face hearing and upping the ante by challenging the tax assessments for 2004 through 2012. He also questioned whether the IRS had issued notices of deficiency for all the years at issue and claimed that he had not received any notices for any of those years.

Thereafter, the parties remained at loggerheads, with Pfetzer refusing to send the unfiled tax returns and other documents requested by Smith, and Smith refusing to provide a face-to-face meeting because Pfetzer had not provided the returns or documents. No telephone conference was held because Pfetzer did not give Smith a valid telephone number.

In April 2018, the IRS issued a notice of determination sustaining the filing of the NFTL, which stated Pfetzer could not challenge his underlying tax liabilities because for 2004 to 2008 he had had a prior opportunity to contest the liabilities for each year when the IRS had previously issued a notice of intent to levy and for 2009 through 2012 the IRS had issued notices of deficiency. Smith had determined that the notices of deficiency were sent to Pfetzer's last known address and confirmed that the lien filing notice was sent to him by perusing the IRS's computerized transcripts.

Pfetzer then filed a petition with the Tax Court challenging the determination. He claimed that Smith had erred in failing to verify that all applicable administrative procedures required by law were followed and refusing to grant him a face-to-face hearing at the nearest IRS office.

Statutory requirements applying to IRS for CDP hearings

Under Sec. 6320(a)(1), the IRS must give any taxpayer liable to pay tax written notice of the filing of an NFTL on the person's property, and the notice must inform the taxpayer of the right to request a CDP hearing with IRS Appeals. As part of the overall CDP hearing process, Sec. 6330(c)(1) requires the Appeals settlement officer to verify that the requirements of any applicable law or administrative procedure have been met. One of the applicable laws is Sec. 6213(a), under which, with limited exceptions, no deficiency may be assessed until after a notice of deficiency is mailed to the taxpayer. Further, the IRS must wait 90 days after issuing a notice of deficiency before assessing a tax deficiency. If a deficiency assessment is not preceded by a notice of deficiency, the assessment, as well as any lien based on the assessment, is invalid.

The Tax Court has held that under Sec. 6330(c)(1), as part of a review of an action to collect a federal tax (i.e., a CDP hearing), a settlement officer must verify that the Sec. 6213(a) requirement that a valid notice of deficiency was issued to the taxpayer has been met. The settlement officer is not required to review a particular document to satisfy this requirement. In general, if the taxpayer received the notice of deficiency, an officer can rely on a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, or a transcript with similar information.

However, where a taxpayer specifically alleges that he or she never received a notice of deficiency, the settlement officer cannot rely solely on IRS tax transcripts for verification. Instead, as the Tax Court held in Hoyle, 131 T.C. 197, 205 n. 7 (2008), supplemented by 136 T.C. 463 (2011), the settlement officer must also examine "underlying documents in addition to the transcripts, such as the taxpayer's return, a copy of the notice of deficiency, and a certified mailing list, to verify the proper mailing of the notice of deficiency under Sec. 6330(c)(1)."

First round in the Tax Court

After Pfetzer's case was set for trial, the IRS moved for summary judgment, supporting its motion by including copies of the notices of deficiency sent to Pfetzer for 2009 through 2012 and substitute U.S. Postal Service Forms 3877, Certified Mailing List, to prove proper mailing of the notices. For the other years, the IRS relied on its transcripts for proof the Service had issued Pfetzer the required notices. The Tax Court found this a tad shy of the mark, denied the request, and remanded the case to Appeals to clarify the record. In order to ensure the IRS understood what it expected, the court in its remand order pointed the IRS to its decision in Hoyle.

On remand of the case to Appeals, Smith continued to press Pfetzer for more documentation, which Pfetzer continued to refuse to supply. He also continued to argue that he did not receive the notices of deficiency for the years at issue, and Smith continued to argue that he could not challenge his underlying liabilities.

Eventually, after a few rounds of correspondence, Smith issued a Supplemental Notice of Determination Concerning IRS Collection Actions under Internal Revenue Code Sections 6320 or 6330 (supplemental notice of determination) sustaining the NFTL filing. Despite the Tax Court's request that the IRS follow Hoyle on remand, Smith again stated in the supplemental determination that she relied on IRS transcripts to ensure that assessments were made and that a notice of the assessment had been sent to Pfetzer for each year in issue.

Second round in the Tax Court

Pfetzer was no more accepting of the supplemental determination than he had been of the original determination, and the case went back to Tax Court. There, he and the IRS filed a joint motion to submit the case to the Tax Court for decision without a trial under Tax Court Rule 122 and made a joint stipulation of facts that included the following exhibits: the lien filing notice, petitioner's hearing request, correspondence between Pfetzer and Smith during the initial administrative hearing and during remand, the notice of determination and supplemental notice of determination, Smith's case activity record, and the IRS transcripts for Pfetzer for 2004 through 2012. Not included as stipulated exhibits were the IRS's complete administrative record, any of the notices of deficiency, or any proofs of mailing to Pfetzer's last known address.

The Tax Court's decision

The Tax Court held that Smith had not fulfilled her Sec. 6330(c)(1) duty to verify that the requirements of any applicable law or administrative procedure were met because she failed to verify that a notice of deficiency had been mailed and sent to Pfetzer's last known address.

The IRS continued to attempt to defeat Pfetzer's claim that Smith had failed to verify that a notice of deficiency had been issued and sent to his last known address by asserting that the claim related to Pfetzer's underlying deficiency. However, again citing Hoyle, the Tax Court stated that "proper verification is not a challenge to the underlying liability; it is a stand-alone requirement in Sec. 6330(c)(1) and is independent of the issues that may be considered under Sec. 6330(c)(2) (such as the taxpayer's underlying tax liability)."

The Tax Court stated that it had remanded Pfetzer's case to Appeals to clarify the record regarding what Smith relied on in making her determination about the notices of deficiency. Nonetheless, with the case back from remand, the IRS still did not point to evidence in the record showing that Smith had examined underlying documents as required by Hoyle. Instead, the IRS simply continued to argue that Smith's examination of the lien filing notice and the computerized IRS tax transcripts satisfied the Sec. 6330(c)(1) verification requirement.

Under similar circumstances, in which the record included the notices of deficiency or Forms 3877 for the years in question, the Tax Court noted that it had sustained the IRS's determination that the requirement was met based on the evidence in the record. However, it could not do this in Pfetzer's case because the stipulated records did not include the notices of deficiency or Forms 3877.

Thus, the court found it could not sustain the conclusion in the supplemental notice of determination that applicable legal and administrative requirements had been met with respect to the assessment of the deficiencies for 2004 through 2012 as required by Sec. 6330(c)(1). Consequently, it held that IRS Appeals abused its discretion in sustaining the filing of the NFTL with respect to Pfetzer's unpaid income tax liabilities for 2004 through 2012.


Having held that the NFTL was invalid, the Tax Court did not reach Pfetzer's alternative argument that he was improperly denied a face-to-face meeting. However, it is unlikely that he would have had any success with it. While taxpayers often think they have the right to look the IRS representative in the eye, Regs. Sec. 301.6330-1(d)(2), Q&A D6, clearly states that a CDP hearing is an informal process, and while it can be a face-to-face meeting, it does not have to be one.

Pfetzer, T.C. Memo. 2021-145

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